HSAs Healthcare Affordability
Millions of Americans have now dropped health insurance coverage in the wake of Congress' decision to allow the enhanced COVID-era healthcare subsidies to expire at the end of 2025. Now, affordability is in the spotlight—particularly when it comes to the cost of healthcare. Many Republicans in Congress have advocated for expanding health savings accounts (HSAs) as a solution to the affordability problem. HSAs allow taxpayers to fund their accounts with pre-tax dollars and withdraw the funds tax-free if they are later used to cover qualified medical expenses.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about whether HSAs are the answer for making healthcare more affordable overall.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Byrnes: HSAs are an incredibly valuable tool when it comes to addressing affordability in healthcare. Taxpayers fund HSAs with their pre-tax dollars--receiving an immediate tax benefit, meaning that they're likely to fund these accounts if they have access. They're then responsible for making their own decisions with respect to how to spend that money, which is advantageous for the market as a whole.
Bloink: HSAs are not the answer when it comes to addressing today's widespread affordability concerns in the healthcare arena. HSAs primarily benefit the wealthiest taxpayers who have the disposable income to fund these tax-preferred accounts. It's these high-income taxpayers who receive the largest benefit in terms of tax deductions and tax-free withdrawals. Lower-income taxpayers have little incentive to fund HSAs because they may not even have tax liability to offset in the first place.
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Byrnes: When consumers have the power to evaluate the value of any given health service and decide whether it's worth their hard-earned dollars, they're more likely to spend wisely. Responsible health spending drives down overall costs across-the-healthcare arena. Expanding access to HSAs give consumers the power they need to control their own health spending over time.
Bloink: HSAs do very little to support overall healthcare concerns for lower-income taxpayers even if they do have access to the HDHP/HSA combo. Lower income taxpayers are significantly less likely to invest their HSA funds if they do have the available resources to make contributions in the first place--because they anticipate needing the funds to cover out-of-pocket medical costs. Wealthy taxpayers, on the other hand, have the funds to cover those expenses out-of-pocket—meaning that their HSA funds are much more likely to continue growing within the tax-preferred vehicle.
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Byrnes: We also have to remember that HSAs are always offered in conjunction with lower-cost, higher-deductible health insurance plans. These HDHPs provide a health insurance coverage option to individuals who otherwise might not be able to afford more traditional levels of coverage. The entire premise is to offer a more affordable health insurance coverage option to encourage taxpayers to continue paying their premiums.
Bloink: Yes, HSAs are valuable--but we have to recognize that HSAs provide very little benefit to the lower-income taxpayers who are struggling with the cost of healthcare the most in today's high-cost environment. Congress should return to the drawing board and seriously reconsider reviving the enhanced health insurance subsidies that were allowed to expire at the end of last year. When Americans are forced to choose between putting food on the table and paying their health insurance premiums, everyone suffers.